The Consumer Financial Protection Bureau (“CFPB”) issued guidance in 2013 to prevent discrimination by auto lenders. On April 18, the U.S. Senate voted to repeal the guidance; the House is expected to pass a substantially similar resolution, which action would then be presented to the president for approval. The CFPB issues “guidance” on specific issues to clarify complex or unclear laws and regulations and, seemingly, to address what it deems to be “problem areas” in the consumer finance industry. Particularly, the CFPB’s 2013 guidance addressed indirect auto lenders that allow auto dealers to increase consumer interest rates, leading to additional revenues shared by both the lender and the dealer. The guidance informs indirect auto lenders’ compliance with the Equal Credit Opportunity Act (“ECOA”), and Regulation B, which implements the ECOA. The CFPB’s guidance specifically states that indirect auto lenders are “creditors” for purposes of the ECOA and Regulation B, thus subjecting them to the ECOA’s prohibitions on discriminating in credit transactions on the basis of race, religion, age, sex, and more. The guidance effectively puts the onus on indirect auto lenders to ensure auto dealers comply with the ECOA and Regulation B and do not discriminate in “marking up” interest rates on auto loans.
The pending congressional rescission is carried out under the authority of the Congressional Review Act (“CRA”), which allows Congress to repeal rules issued by federal agencies with a simple majority vote of both the Senate and the House. Congress recently utilized the CRA to rescind the CFPB’s controversial final rule banning the use of pre-dispute arbitration clauses in consumer arbitration agreements in order to block consumers from bringing class action lawsuits. Although the CFPB’s critics may look at the guidance’s impending rescission as a victory against an agency that has over-regulated the consumer finance industry, that assumption could be premature.
Instead of voting to rescind a final rule, such as the widely-panned final arbitration rule, the Senate voted to rescind guidance issued by the CFPB. Although the CFPB has maintained that this guidance does not constitute a “rule,” which Congress can repeal using the CRA, the Government Accountability Office has since determined such guidance does constitute a “rule.” Where the CFPB’s guidance is issued to clarify its reading of a particular law, the rescission may, nevertheless, not prevent the CFPB from taking the same position in court, though some believe that relying on arguments that have been repealed by Congress would embarrass the Bureau. Regardless, the rescission of the CFPB’s guidance could very well lead to the CFPB abstaining from issuing guidance clarifying its position on the reading and enforcement of complex or ambiguous laws and regulations governing consumer lending. The CFPB’s abstention from issuing guidance could cause those complex and ambiguous laws and regulations to remain complex and ambiguous, forcing consumer lenders to make attempts to comply without any substantial direction as how to do so. Without clarification and guidance by the CFPB, lenders could find themselves subject to expensive litigation over issues that could have been avoided altogether had the CFPB been able to issue guidance without the looming possibility that Congress may invalidate its interpretation of laws and regulations.